United gets competition on Chicago-Beijing route

(Crain's) -- American Airlines appears set to compete head-to-head against United Airlines for lucrative business fliers heading to Beijing from Chicago.

On Tuesday, the U.S. Department of Transportation proposed awarding American the Beijing service as one of the four new China routes to begin in 2009. The others getting preliminary approval were Continental Airlines between Newark and Shanghai, Northwest Airlines between Detroit and Shanghai, and US Airways between Philadelphia and Beijing.

Initial speculation was that the Department of Transportation would grant approval for service from another U.S. city to China rather than allowing a second carrier to compete on the Chicago-Beijing route.

Routes to China, which are tightly controlled, have been hotly contested among U.S. airlines because of the growth potential and limited competition.

The new routes are the result of an agreement between the U.S. and Chinese governments signed in July. The agreement aims to increase the number of daily direct flights between the countries to 23 from 10 within five years.

United, which first began service to China in 1986, has been flying to Beijing from Chicago since 2001. More than 100,000 passengers flew to China's capital last year on United, a 7% rise from 2005.

United, which operates five other daily non-stops to China, won final approval Tuesday to begin direct flights from San Francisco to Guangzhou in 2008.

When American begins its new service, it should bring down ticket prices for non-stop flights from Chicago to Beijing.

For departures between Tuesday and Dec. 5, United's cheapest non-stop flight on the route costs about $1,200, according to FareCompare.com. After Dec. 6, the price rises to $1,600.

Because American can't begin service until 2009, United has a huge opportunity to profit from the Beijing Olympics next summer.

The price to fly non-stop to Beijing from Chicago during the Olympics is expected to rise to between $2,200 and $2,800, according to FareCompare. Indirect routes through Japan or other countries can cost about 20% less.